Overseas Workday Relief and pension annual allowance after 6 April 2025

Overseas Workday Relief, or OWR, still exists after 6 April 2025, but the rules have changed.

The relief is no longer part of the old remittance basis system. Instead, it now sits within the UK’s new residence-based regime and works alongside the wider FIG framework for qualifying new residents.

How does OWR work after 6 April 2025?

For tax years beginning on or after 6 April 2025, OWR is available under the new regime rather than under the remittance basis. Broadly, the relief applies to the amount of qualifying foreign employment income charged to tax that relates to overseas duties, determined on a just and reasonable basis.

Making an OWR election also strips away an individual’s personal allowance and capital gains tax annual exempt amount for that tax year

A major practical change is that the earnings no longer have to be paid to, or retained in, an offshore bank account for relief to apply. Under the old rules, keeping earnings offshore mattered because OWR worked through the remittance basis. Under the new regime, HMRC says that is no longer the deciding issue.

How long can OWR apply?

OWR broadly tracks the qualifying new resident framework, so it is relevant during the individual’s eligible early years of UK residence. HMRC also confirms that transitional rules apply for some employees who arrived before 6 April 2025 and were already using OWR under the old system.

Is there a cap?

Yes. From 6 April 2025, OWR is subject to a financial limit. The amount of relief is capped at the lower of £300,000 and 30% of the individual’s total employment income. This is one of the most important changes in practice, especially for senior employees with large international remuneration packages.

How does OWR interact with pension annual allowance?

OWR does not replace the annual allowance rules. The standard pension annual allowance still applies in the normal way, and high earners may still be caught by the tapered annual allowance. Tapering applies where threshold income exceeds £200,000 and adjusted income exceeds £260,000.

What OWR can do is reduce the amount of income that is actually taxable in the UK. In some cases that can reduce threshold income and adjusted income for taper purposes, which may improve the annual allowance position compared with a scenario where no OWR is available. But the pension input itself, including employer contributions, still counts in the normal way.

Why is this important for employers and internationally mobile employees?

For many internationally mobile employees, the interaction between OWR and pensions is easy to miss. A generous overseas duties split may improve the UK income position and potentially soften taper exposure, but it does not remove the need to test pension contributions properly each year. HMRC’s PAYE and manual guidance now specifically reflects the financial cap and the new structure of the relief.

This is especially relevant where total remuneration is high, employer pension contributions are significant, or OWR is only available for a limited number of years before ceasing. Once OWR ends, taxable income may rise and taper pressure may increase.

What should individuals and employers be reviewing?

A sensible review usually includes the overseas duties analysis, the expected OWR position, how PAYE is being operated, total pension input for the year, and whether threshold and adjusted income are likely to trigger tapering. It is also important to remember that the numbers may change from year to year as remuneration and work patterns change.

Overview

OWR remains a valuable relief, but from 6 April 2025 it operates in a different way. The offshore bank account requirement that mattered under the old regime is no longer central, a new financial cap applies, and the interaction with pension annual allowance remains important for higher earners. For employers and employees alike, the post-2025 regime is simpler in some respects but still needs careful annual review.